Millennials are Leaving Credit Cards Behind

Do you know who your buyers are? There's a good chance that the majority of them belong to the Millennial generation. According to a recent analysis of census data by the Pew Research Center, Millennials already make up more than a third of the American workforce—and that proportion is only expected to increase in the coming years. If you haven't adjusted your business to accommodate the habits and expectations of this crucial segment of your customer base, now is the time to do so.
 

More Than 1/3 of the Workforce are Millennials

More than 1/3 of the workforce are millennials
 

Millennials have an aversion to debt

One important way Millennials differ from previous generations is in their preferred mode of payment. A recent Bankrate survey found that just a third of consumers between ages 18 and 29 have a credit card, compared to 62% of consumers between 50 and 64. Meanwhile, financial reports from Visa show that Millennials are using debit cards more often than credit cards. The move away from credit cards is being driven in part by Millennials’ fear of racking up the same kind of debt that harmed people they knew during the 2008 recession. But it also represents increased comfort with alternative payment methods. In response, financial services companies like Experian are adapting new credit models to paint a clearer financial picture for Millennials with thin credit files. These models rely on alternative credit data taken from utility payments and combine it with demographic information such as education and professional history. Smart suppliers are responding to Millennial preferences by using these new credit tools to judge creditworthiness and giving their customers other ways to pay, such as 30-60-90 terms.

How terms benefit both you and your customers

A terms account offers a powerful alternative to credit cards. To start with, terms cost suppliers less than credit card processing fees, which represent a major burden for many B2B companies. When customers use credit cards, suppliers effectively pay twice for each interaction: first for the cost of an in-house credit program and second for the 2-4% processing fee (and even more for card-not-present scenarios).  Just as importantly, terms can be used strategically to boost sales and reduce risk. Suppliers should assess the relative profitability of each customer, as well as the true cost of not getting paid. They should then offer more generous terms that encourage spending for their best customers and, for more unpredictable customers, more restrictive terms that minimize risk.

Job-to-job flexibility

Terms can also be altered from job to job, even for the same customer. A customer to whom you've traditionally given 30-day terms may take on a project that requires extended terms. For example, a big builder is working on a development and won't get paid until the property closes, or a customer is working with a municipality that requires 60-day terms. In situations like these, offering customers extended terms could keep you from losing business to a competitor.

Ecommerce terms at checkout

Another way that suppliers are responding to Millennials’ payment preferences is by adding terms at their online checkout. Many suppliers have both online and offline customers and need a terms program that can seamlessly serve customers in both environments. This experience should also include paper applications and online applications with instant decisioning and ability to purchase. As your Millennial customers embrace optional forms of payment, offering them the ability to pay on terms can generate new business and drive loyalty.  

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